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Best Ways to Finance Your Small Business

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Financing is probably the biggest obstacle for small businesses. Unless you have a revolutionary idea or work within the IT sector, getting a loan tends to be tricky. Financial institutions are reluctant to borrow money from generic companies, and if they do, they do so with a hefty interest.

Still, that doesn’t mean that everything is bleak. The good thing about the US financial system is there are always options. That said, we’ve decided to help you out by listing some of the best ways you can fund your upcoming project.

  • Hard Money Loans

The great thing about commercial hard money loans is that there’s always significant collateral to back it up. As such, lenders are usually willing to help you, regardless of your situation. It’s also worth noting that these types of loans are typically provided by individual investors, not necessarily traditional financial institutions. 

On the other hand, these loans always have their fair share of issues. People generally perceive them as last-resort financial products, which entrepreneurs use to patch holes. They have an interest rate of 10% to 18%, which is significantly higher than the usual mortgage. Hard money loans are prevalent among people dabbling in real estate, like flippers and short-term investors. 

  • Traditional Bank Loans 

You might also acquire a favorable traditional loan depending on your particular situation and business idea. As it usually goes, the interest for these financial products can vary significantly based on how the bank interprets your credit score. 

Unfortunately, many small businesses struggle to qualify for this type of assistance. This is especially true if you’re a startup or don’t have well-established credit. Another major problem you might encounter is that the processing speed is too slow. As such, you might get in a pickle if you’re using the loan to fulfill obligations or get your business off the ground. 

  • Crowdfunding

When we talk about financial assistance, we rarely think about crowdfunding. Nonetheless, this approach is practical in specific niches and industries. For example, it’s amazing for tech and gaming niches, and it also works well for various entertainment-related businesses.

The good thing about crowdfunding is that, unlike stock, you don’t owe share of company to your investors. Furthermore, you have much more control when choosing what type of compensation to provide. As for the drawbacks, promoting your offer and bringing people to your web page can be a tall task.

  • SBA Loans

As a small brand, you can’t go wrong with SBA loans. This type of financial assistance is backed by the US SBA (Small Business Administration) and is among the cheapest ways to finance a startup. Given that the government guarantees part of the loan, the entire application process is much more streamlined.

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SBA loans are outstanding for people who don’t trust banks. Then again, you’ll still have to jump through numerous hoops to get this help. Entrepreneurs can borrow up to $5 million, which they can repay over 30 years. The down payment is also fantastic, often rounded up at 10%. 

  • Online Loans

Many entrepreneurs are reluctant to put their trust in online loans. As they can’t interact with bank representatives, they are skeptical about the terms and fees they’ll receive. Nevertheless, as long as you properly vet a financial provider, you can get fantastic support akin to that of a traditional bank.

Perhaps the best thing about online loans is that they come in various shapes and forms. Companies offer various financial products you can use in different business situations. It also helps that these loans have shorter waiting times, albeit they commonly come with higher interest rates. 

  • Small Business Grants

Grants are an excellent option that every entrepreneur looks forward to. With this one-way borrowing, you don’t have to worry about the standard financial obligations other businesses face. You also don’t have to vouch nor give away a part of your company, making grants practically free money for your project.

Unfortunately, this makes small business grants highly sought after. Numerous entrepreneurs apply for this kind of assistance, but a limited number of people receive it. The application process also tends to be exhausting, so many companies quit before starting. Nevertheless, if you have time and nerves, you should definitely consider this financing option.

  • Angel Investors

Depending on your idea, you might even attract some angel investors. These individuals are willing to put a top dollar into your business proposal as long as it can make them money. In most cases, this type of loan presumes you’ll give a part of your business. Conversely, you might get a major financial injection banks wouldn’t otherwise provide. 

Unfortunately, as it usually goes, when things sound too good, they typically are. Angel investors will take a large part of your business or might want to get directly involved with your operations. The loss of control is especially troublesome if you rely on patents and proprietary knowledge and don’t trust your future partner. 

Conclusion 

Entrepreneurs can explore numerous borrowing options for their small businesses. Some of them put you in minimal debt or barely require any collateral. So, regardless of your situation, you’ll find something that fits your current needs and borrowing capabilities. 

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